Resilient macro data, softer inflation and strong corporate earnings have helped global markets recover, with equities reaching new highs and bonds extending gains. Expectations of further Fed rate cuts supported sentiment, while the USD strengthened amid JPY weakness and gold consolidation. However, with valuations near cycle peaks and policy uncertainty still looming, investors remain focused on upcoming central bank meetings for direction.
Market recap
Beyond the numbers
Macroeconomics
Last week’s data reinforced the picture of a resilient global economy. In the US, business activity gathered pace despite the ongoing government shutdown. The composite PMI rose to 54.8, its highest level since July, supported by steady gains in both manufacturing and services. Inflation eased slightly, with core CPI up 0.2% m/m and 3.0% y/y, as weaker housing and food prices offset higher energy costs and tariff-related categories. The limited pass-through from tariffs strengthened expectations that the Federal Reserve will cut rates by 25 basis points on Wednesday.
In Europe, the latest data suggested a modest improvement in activity. The eurozone composite PMI increased to 52.2, driven by robust German services activity, while France remained in contractionary territory at 47.1, with its sovereign outlook downgraded to ‘negative’ from ‘stable’ by Moody’s. Meanwhile, eurozone consumer confidence edged up again (-14.2), showing signs of stabilisation at historically low levels.
The UK continued to display tentative signs of recovery, with its composite PMI rising to 51.1, marking the first expansion in manufacturing output in a year. Softer inflation, which came in below the Bank of England’s 4% forecast (at 3.8% y/y), further reinforced expectations of policy easing by 2026.
On the political front, the US expanded sanctions on Russia’s two largest oil producers, while President Trump and China’s President Xi are expected to meet on 30 October to finalise a trade deal. In Japan, Sanae Takaichi was appointed prime minister, forming a minority government that will require opposition support to govern effectively.
This week, attention turns to central banks amid the ongoing US government shutdown. The Fed is widely expected to cut rates again, while the European Central Bank (ECB) and the Bank of Japan (BoJ) are likely to keep their rates on hold. On the data front, markets will focus on Germany’s Ifo survey, eurozone inflation and flash Q3 GDP releases, as well as US consumer confidence.
Asset allocation: strategic views as at October 2025
Equities
Global equities advanced (MSCI ACWI +1.9%) to another all-time high. The move was supported by robust corporate earnings and a softer-than-expected September CPI, reinforcing the case for the Fed to continue cutting rates in the coming months. Markets remained volatile, especially around US–China trade tensions, before news of scheduled meetings helped calm nerves.
Energy, technology, and industrials led the rally. Energy outperformed, as higher oil prices, driven by the announcement of further sanctions on Russia and lower-than-expected US inventories, provided a tailwind for the group.
Earnings season is off to a strong start: among the 22.5% of S&P 500 companies reporting, 87% have topped projections. Earnings are beating estimates by 6.4% in aggregate, putting EPS on pace for 10% growth versus the 8% expected at the beginning of the month.
This week’s developments support our constructive view, but risk management remains essential after a more than 25% year-to-date rally and valuations near cycle peaks. Investors should diversify across regions and sectors and consider tactical option hedges to protect year-to-date gains.
Earnings lift markets, but caution still matters
Fixed income
The performance of fixed income was again positive last week, with both investment grade and AT1s up 0.2%, high yield gained 0.5%, while emerging markets stood out with a 0.7% rise. Meanwhile, the positive trend seen at the beginning of the week on US 10-year paper was partially offset by the negative impact of President Trump’s decision to interrupt trade talks with Canada, with 10-year yields ending the week at 4.0%. The current consensus now points to two additional rate cuts by the end of the year.
In France, the yield on 10-year government bonds rose by 10 bps on Friday to 3.45%, following pressure on Prime Minister Lecornu to make concessions on his budget plans, mainly coming from the Socialist Party, in order to avoid facing another confidence vote. Over the weekend, Moody’s left France’s rating unchanged at Aa3, but revised its outlook to negative.
Meanwhile, yields on UK 10-year paper moved down significantly (-10 bps to 4.4%) following the release of unexpectedly steady inflation data, and investors now assign a higher probability to the Bank of England cutting rates before year-end.
Last, the Swiss National Bank stated on Thursday that, despite rising concerns about US tariffs impacting its pharmaceutical industry, it does not see the need to lower rates for the moment, as previous rate cuts are still expected to have a positive effect on the economy.
This week, the focus will be on the Fed’s meeting on Wednesday (expecting a 25-bp cut) and on the ECB’s meeting on Thursday (unchanged).
Fixed income extended gains as rate-cut expectations kept yields in check
Forex & Commodities
Last week, the USD rose against most of the major G10 currencies. The rise reflected the major weakening in JPY exchange rates. There were few US data releases, given the ongoing US government shutdown. The main event for the coming week will be the Fed meeting on Wednesday, where it is expected to cut rates by 25 bps, taking the Fed funds rate to 4%. This has been priced in with 100% probability. Markets have comprehensively priced in the Fed’s rate cutting cycle, so we do not believe that the USD will weaken aggressively in the coming week.
On Wednesday, the Bank of Canada (BoC) will move to cut rates by 25 bps, taking its base rate to 2.25%; this has been broadly priced in, and it will not have a huge impact on CAD exchange rates, unless the BoC indicates that this is the last rate cut in its cycle.
The USD/JPY rose to levels of above 153.00, reflecting the market’s belief that the BoJ will keep its rates on hold at this week’s meeting. The BoJ has not indicated any strong willingness to raise rates, and the JPY has weakened as a result of this.
Gold and silver saw large losses last week, with significant declines in front-end volatility. Liquidity appears to be poor, which may have exaggerated the initial declines. We note that investor positioning remains largely unchanged. We expect that both will consolidate in the near term, with only limited scope for further declines.
Dovish central banks support the USD, while the JPY is still under pressure and gold consolidates
The opinions expressed herein are correct as at 27 October 2025 and are subject to change without notice. This information should not be relied upon by the reader as research or investment advice regarding any particular fund, strategy or security. Past performance is not a guide to current or future results. Any forecast, projection or target, where provided, is indicative only and is not guaranteed in any way.
